Indian rupee rally to pause on retreat in Asian peers after mixed Fed signals

MUMBAI: The Indian rupee’s recent recovery may run out of steam on Thursday on the back of a decline in Asian peers after the Federal Reserve delivered a muddled message.

The Fed’s dot plot signalled dovishness, while parts of Fed Chair Jerome Powell’s remarks were read as hawkish by some analysts.

The 1-month non-deliverable forward indicated the rupee will open in the 87.88-87.92 range versus the US dollar, compared with 87.8150 in the previous session.

The Fed delivered a 25-basis-point cut, while the dot plot projected two more reductions this year, matching what markets had largely priced in before the meeting. The policy statement acknowledged that “downside risks to employment have risen”.

Powell framed the move as a risk-management cut, which ING Bank noted was understandable since the U.S. economy “appears in pretty decent shape.”

Madhavi Arora, chief economist at Emkay Global Financial, said the dovish dot plot was downplayed by Powell’s hawkish press conference, casting doubt on whether Wednesday’s cut marks the start of a long rate cut cycle.

The policy outcome triggered choppy moves across U.S. markets, with the dollar index sliding at first before clawing back losses.

Asian markets diverged, with currencies weakening while equities marched higher. U.S. equity futures rose following a near-flat session overnight.

The rupee has climbed for four straight sessions, recovering from a record low of 88.4550 last week, aided by a softer dollar, debt inflows, and position unwinding.

A currency trader at a private sector bank said the rupee is likely to weaken at the open partially to correct for the rally in the last few sessions as well as track moves in Asian FX.

The drop may be limited though, as “now 88 looks like a major support for the rupee — it is unlikely to fall below that,” he added.